Finding a new office…its not as quick or easy as you think

Let’s cut to the chase…when should you start looking for a new office?  Most brokers will tell you at least one year before your current lease is set to expire.

While all situations are different and factors regarding location, cost, size and type of space will play a factor, one year out is a good time to start...but starting earlier can save you time and money.

It seems like a long time, but it can go by quickly.  Let’s put together a timeline for Joe’s Insurance.  Joe is looking for 6,000 square feet for his business.  He would like to be downtown or west Knoxville, in nice space.  It doesn’t have to be Class-A space, but pretty close.

Step 1-Find a broker, of course.  Depending on how much time Joe has to devote to the process this could take a day or a month.

Step 2-Joe sits down with his broker.  He needs to know what part of town Joe needs to be in? How much can Joe spend per month?  Does Joe need a space with a lot of offices or can an open floor plan work?  Other details include; parking requirements, hours of operation, length of lease etc…

Step 3-Property Search:  The broker performs a search through the commercial MLS , talks to other brokers, and relies on their basic knowledge about what is available.  This will provide an initial list for Joe to review.  Some properties will be deleted, others may be added, all based on cost, location and the type of building.  This will allow Joe to tour the spaces he is interested in without wasting vast amounts of  time.  Hopefully after the tour Joe will have narrowed his list to 2 or 3 spaces.  This entire process can take a week or three months.  It all depends on how quickly of a move is required and what is available. 

Step 4-Here is where is gets tricky…determining where Joe really wants to go.  Some times it is easy, there is one place you want to go, everything is perfect.  More often than not there are multiple locations that would work.  In a situation like this an Request for Proposal (RFP) orLetter of Intent (LOI) is effective in determining exactly what you expect from the Landlord and what he expects from the tenant.  Typically an LOI or RFP will spell out the length of the term, the lease rate, and tenant improvements that the landlord will provide.  They can also get VERY detailed.  I’ve had LOI’s that are 1 page long and I’ve had LOI’s that are 35 pages long.  This process can take anywhere from 1 week to 2 months depending on how firm either party wants to stand on a specific issue.  With the LOI/RFP in place you can determine what is best for an office based on actual comparisons of rates, tenant improvements etc…   If you would like more information about LOI’s/RFP’s let me know jcazana@cornerstonecres.com.

Step 5-Lease Review.  Once Joe has made his decision on the space he wants the landlord will (typically) provide a lease for the space.   The lease should include all the information that was negotiated in the LOI/RFP as well as MUCH more.  You will become familiar with words like default, estoppel, force majeure and many others.  While brokers can provide basic insight in the lease it is imperative that an attorney review this document.  Leases are legally binding and if you don’t understand the details it can get you in a lot of trouble if you default on the lease.  How long will lease review take?  One week to a year!  It just depends.  My favorite story about negotiating a lease was just a two years ago.  On my first conference call with the tenant’s attorney she told me she had just found out she was pregnant.  At the time of our last conference call to seal the deal her baby was 4 weeks old!  That is an extreme but it happens (especially with corporations).

There are many other details that are some times worked in to the process. 

• Space Planning: If a tenant is moving into brand new space (which has never been built out), or a significant amount of construction is required to prepare the space for occupancy, a space plan from an architect should be considered.  This will allow the tenant to determine how much space they really need.  How many offices fit in the space, the most efficient use of cubicle space, where the conference room should go etc…This takes anywhere from a week to a month depending on the size of the space.
• Construction Estimates:  The space plan will allow the tenant or landlord to determine how much construction will cost.  The last thing you want to have happen is to budget construction costs at $10,000 and it ends up being $50,000.  I’ve seen it happen.  This should take less than 10 days.
• Construction:  Again, depending on the size of the of the office and what is involved construction typically takes between 60-90 days.  That includes construction documents, permitting and actual construction.

So there you go, a “looking for space timeline” in a nutshell.   If you need to find space in 2012 you should already be looking.

You can reach me at Cushman & Wakefield|Cornerstone CRES if you have any questions about property searches.  865-617-2989 or jcazana@cornerstonecres.com

Get to know your Broker!

Oh its important. You wouldn't leave the sale of your house to a random stranger who may, or may not, know anything about the market.  If you are looking for a new office, warehouse or store space having a knowledgeable, experienced broker is imperative.  It maybe be even more important for investments.  You will have to put a lot of trust into the person who will help you find the property that fits in your portfolio.  You must know that he will provide you with the information you need.

With that being said...here is the Cushman & Wakefield|Cornerstone team.  With more than 125 years of experience, the team has the local market knowledge and national brokerage experience to get you through any transaction.

John M. Adams, III CCIM/SIOR

PRINCIPAL

EMAIL:  jadams@cornerstonecres.com

John M. Adams is a founding Principal with Cornerstone in Knoxville, Tennessee.  A Knoxville native, John is involved in the sales and leasing of office properties. After graduating from the University of Tennessee, John obtained his Affiliate Broker license, was involved in real estate management and development, and joined Wood Properties in 2003.  John is one of three brokers in the Knoxville market to obtain both his CCIM and SIOR designation. 

Don Brewer, CCIM

PRINCIPAL

EMAIL:  dbrewer@cornerstonecres.com

Don Brewer is a founding Principal of the Knoxville office of Cornerstone.  Previously, he was founder and principal of Realty Investment Services, a commercial real estate brokerage and management firm he successfully ran for 10 years.  Don specializes in office sales, leasing, and development in addition to brokerage of development sites, retail leases, and investment sales.  He has a broad range of practical business experience and expertise in real estate financial analysis.  Don is the 2010 Knoxville CCIM Broker of the Year.

Justin Cazana, CCIM

PRINCIPAL

EMAIL:  jcazana@cornerstonecres.com

Justin Cazana is a founding Principal and Broker with Cornerstone in Knoxville, Tennessee.  Justin specializes in office and retail transactions with experience representing both landlords and tenants.  His current portfolio encompasses more than 1.1 million square feet of commercial space.

A Knoxville native, Justin began his career with Commercial & Investment Properties handling the leasing and marketing of the companies’ buildings.  This includes Knoxville landmarks like Century Park at Pellissippi (an 80-acre office development), The Atrium, and Two Centre Square.  Justin in the former president of CCIM in Knoxville. 

Jim Holleman, CCIM

PRINCIPAL

EMAIL:  jholleman@cornerstonecres.com

Jim Holleman is a founding Principal in the Cornerstone branch in Knoxville, Tennessee.  He started in the real estate industry in 1979 on the retail side of the business in North Carolina, then continued his experience with the Herring Marathon Group in Texas.  In 1985, Jim moved to Knoxville leasing shopping centers in Tennessee, Alabama and South Carolina for Fortune, Masingil and Parish, the largest shopping center developer in Tennessee at that time.  In 1989, he formed Asset Management and Development, a real estate and development firm that developed numerous office properties in the Knoxville area and managed the Andrew Johnson Office Plaza for Aetna Life and Casualty.  In 1994, Jim merged his company into Wood Properties, Inc. and returned to full time brokerage, specializing in industrial, investment sales, and development.

Dan Atkins

ASSOCIATE DIRECTOR

EMAIL:  datkins@cornerstonecres.com

Dan Adkins is an Associate Director at Cornerstone in Knoxville, Tennessee.  He has been an active entrepreneur in the Knoxville business community for his entire adult life.  After graduating from Middle Tennessee State University in 1979 with a B.B.A., Dan opened a chain of retail stores that he ran for over 24 years.  In 1997, he sold most of his businesses and retained the commercial properties.  In 1998, Dan started an auto manufacturing and fabrication business which he operated for 6 years. For the past 20 years, Dan has invested, managed, and leased retail and office/industrial properties in the Knoxville area.

Leslie Bauges 

ASSOCIATE DIRECTOR  

EMAIL:  lbaugues@cornerstonecres.com

Leslie Baugues primary responsibility at Cushman & Wakefield|Cornerstone CRES is leasing retail shopping centers. As an East Tennessee CCIM chapter member and an active member of ICSC, Baugues is ideally suited to grab hold of the market.  She holds degrees from both the University of Tennessee and the University of Kentucky.  Prior to joining Cushman & Wakefield|Cornerstone she worked for Holrob Commercial Realty for ten years, where she leased and developed shopping center across the United States. 

 

Jake Brewer, CCIM

ASSOCIATE DIRECTOR

EMAIL:  jbrewer@cornerstonecres.com

Jake Brewer is an Associate Director with Cornerstone in Knoxville, Tennessee, specializing in site selection and tenant representation. Jake also handles acquisitions and dispositions for retail, office and industrial property types. After graduating with a degree in Finance and Marketing from the University of Tennessee in 2006, Jake joined First Southern Mortgage in Nashville as a commercial real estate analyst. At this position, he worked with a senior producer arranging permanent financing, construction loans, and equity placements for commercial properties totaling over $100 Million. Jake then joined  Realty Investment Services, a Knoxville based brokerage firm, as an affiliate broker where he completed over 200,000 square feet of commercial real estate transactions in his first year.

Rick Gentry

ASSOCIATE DIRECTOR

EMAIL:  rgentry@cornerstonecres.com

Rick Gentry is an Associate Director at Cornerstone Commercial in Knoxville, Tennessee. Mr. Gentry has extensive knowledge and experience in multifamily properties including brokerage and development. Rick is a member of the East Tennessee Chapter of CCIM (Certified Commercial Investment Member) and is actively pursuing his CCIM designation

Mitch Taylor, SIOR/CCIM

DIRECTOR

EMAIL:  mtaylor@cornerstonecres.com

Mitch Taylor is a Broker with Cornerstone in Knoxville, Tennessee.  He has 21 years of experience as a Realtor, specializing in the sale of commercial real estate.   Before joining Cornerstone, Mitch was a Partner at Realty Investment Services for 3 years; before that he worked as a Associate Broker at NAI Knoxville for 18 years.

John N. Rebori, Jr., CCIM

ASSOCIATE DIRECTOR

EMAIL:  jrebori@cornerstonecres.com

John N. Rebori, Jr. serves as an Associate Director for Cornerstone, specializing in the sale and leasing of retail investment properties in the east Tennessee market.  John is a licensed broker in both Tennessee and North Carolina and has successfully closed more than 250 commercial real estate transactions since 1999. His experience includes Single Tenant Investment Buildings, Shopping Center Investments, Site Selection, Restaurant and Foodservice Site Selection and Sales, Landlord Representation, Retail Leasing and Sale-Leaseback Investments.  Prior to joining Cornerstone, John served as a Senior Advisor with Sperry Van Ness / R. M. Moore, LLC in Knoxville, Tennessee, and has been listed as a top agent in sales and leasing volume as well as top leasing agent.  

Another bonus to working with Cushman & Wakefield|Cornerstone CRES is the depth of resources we can bring to bear on any transaction.  Cushman & Wakefield has a global reach the includes; valuation, disposition, facilities management, corporate services and capital markets.   A great example of Cushman & Wakefield's reach is in Chicago.  At one time the tallest building in the world was the Sears Tower.  Thanks for Cushman & Wakefield's team of real estate experts Willis Insurance signed a 400,000sft lease in the building which included naming rights.  Not many firms can get one of America's iconic landmarks renamed but Cushman & Wakefield was able to get it done. 

  

Yes! You need a Commercial Real Estate Broker!

Commercial brokers get the deal done.

There are literally dozens of variations of commercial leases; full service, gross, modified gross, NNN, NN, absolute NNN...you get the idea.  We will get into leases at a later date; but they are just one of the reasons you need to have a commercial real estate broker on your side when looking for space, negotiating a lease, or purchasing/selling commercial property.

Let me answer the first question most commercial realtors get asked when working with a client for the first time...                                      "How does the broker get paid?"  While each case can be different, depending on the circumstances, in the Knoxville market it is standard business practice for the landlord to pay the commissions in a lease.  Hence, it doesn't cost the realtor's client (the tenant) a dime to look for space.  

Commissions for property sales are similar to residential practices in that they are negotiated in the sale contract.  

In the eyes of the state of Tennessee, and national groups like REALTOR, there is no difference between a commercial realtor and a residential realtor.  We all have the same licenses and took the same classes; it’s what we do with the license after it is earned that makes the difference.   Many commercial realtors earn designations that help educate them on marketing properties, helping clients make decisions on proper investments and the like.  Some you may have seen include CCIM (Certified Commercial Investment Manager, http://chapters.ccim.com/easttennessee); SIOR (Society of Industrial and Office Realtors, www.sior.com) and CPM (Certified Property Manager).  These realtors have spent hundreds of hours in courses, and years in the field, to prepare them to meet their client's needs. 

Two of the biggest reasons to use a commercial realtor are time and experience.  

Time is the one thing everyone has a shortage of.  Instead of spending your day driving around town looking for space that might be available (and hopefully in your price range) commercial brokers have market knowledge and multiple interactive data bases at their finger tips to steer you in the right direction.  Say you want office space in west Knoxville...within minutes a commercial realtor can tell you what is available in that area, what it costs and the type of development in which the office is located.  The same can be said for retail and industrial space.  This way you can spend 15 minutes narrowing the list of potential spaces instead of three hours just trying to find out what is available and tracking down phone numbers.   

Commercial realtor's experience is what saves you money!  Any broker worth his salt will know the important details you need to help you make an informed decision.  Is this a new building?  If so, what kind of tenant improvement allowance will be included?  Is the rent abnormally high for the market and the economy (boy, does that really play a part now)?  What other kind of leasing incentives might the landlord provide? Should you lease or buy? 

Commercial realtors will also have the experience to walk you though a lease (although most realtors are not lawyers and any lease should be reviewed by legal counsel prior to signing) to explain things like; force majeure, estoppel, operating expenses etc...

On the other side of the ledger, property owners can use the expertise of commercial realtors in much the same way.  Instead of spending your precious time looking for a tenant for your empty building a realtor does it for you.   Commercial realtors are able to market the space via local and national data bases (basically a commercial multiple listing service), they can market the space through signage on the property and most importantly they talk to other brokers every day.  It helps them keep the pulse of the market; who is looking and how much space are they looking for.  

Commercial realtors can also help keep you apprised of market conditions.  If several of the building around yours lease space for well below what you are asking the broker can determine if you are asking too much.  Commercial realtors are paid to know this information.   

Also important to owners is disposition of the property.  Better described as “what are you going to put in your pocket when you sell”.  There is an entire CCIM course related to these transactions.  How should you price your property?  What kind of capitalization rates (cap rate) can the market withstand? What tax implications do you have when you sell it?  Experienced commercial realtors can walk you thru all these steps.

There are many more details that we can get into regarding commercial brokers.  The items above are strong evidence that an experienced broker is imperative to the success of your property search or ownership. 

Cushman & Wakefield|Cornerstone CRES (www.cornerstonecres.com) is the market leader in experience.  More than three dozen brokers canvas middle and east Tennessee in the office, retail, multifamily and industrial markets.  From simple lease deals to complicated capital market  international transactions; Cushman & Wakefield has the resources to make the deal as easy as possible for its clients. 

Justin Cazana, CCIM

Principal/Broker

Cushman & Wakefield|Cornerstone CRES

The Knoxville Market- A quick overview.

Where to start?   The Knoxville market is about as diverse (regarding locations) as you can get for a community this size.  

If you are not familiar with Knoxville it is broken down into several submarkets: 

1. Downtown/UT-includes the downtown high-rise buildings, courthouses etc…as well as the University of Tennessee.

2.  West Knoxville-where most of the large scale growth is taking place and includes everything from the Bearden area to Farragut (which is becoming a submarket in itself)

3. North Knoxville (including Clinton Hwy area)-quite a bit of retail development going on in this area and a resurgence in general.

4.  South Knoxville-popular area for commercial & residential growth/redevelopment being pushed by municipal governments.

There are several other submarkets that are players as well that we won’t cover in detail:

a. Maryville/Alcoa-home to the region’s airport, Ruby Tuesday HQ, Alcoa Aluminum.  Very quaint area with some growing retail areas and some new office buildings.

b. Sevier County-home of tourism and retail located about 35 minutes east of Knoxville

c.  Oak Ridge-a city built by the government (originally) and home too many Department of Energy offices and related contractors.  Billions of federal dollars are poured in to this area every year.  Only 25 minutes from downtown Knoxville.

Knoxville has been lucky to avoid the harshest lashes of this recession because of a strong employment base.  Federal groups, like the Department of Energy and TVA, are two of the largest employers in the area.  The University of Tennessee employs almost 9,000 people and the top four hospital/health groups employ almost 20,000.   Still Knoxville has dealt with some of the effects of the recession that has affected real estate and development. 

Downtown the growth has been in residential condo’s and some street front retail, the latter pushed by local governments.  While the growth of downtown continued through the recession it has slowed in the past 12 months because of the economy.  Still this area is a vibrant part of the market.  

Most of the class-A office is limited to five buildings, Riverview Tower, First Tennessee Plaza, the Bank of America building and One & Two Centre Square.  It has been almost 20 years since a Class-A building was developed in the downtown market, and without something new it will be difficult for downtown to thrive.  Two large projects were on the drawing board, Sentinel Tower and Metropolitan Plaza, but both have been shelved because of the economy.  There is a shortage of available Class-A space because of this, although there are several thousand square feet of sub-lease space on the market because of large corporations downsizing.

Downtown is becoming a vibrant place thanks to efforts on Gay Street and Market Square to increase retail and entertainment in the area.  The Central Business District continues to market the area and solve parking issues that may be limiting growth in the sub-market.  

West Knoxville is the site of most of the growth in the office sector, as has been the trend for the past 20+ years.  In fact, in the last five years, I am not aware of any multi-tenant office developments in north, south or east Knoxville that exceed 25,000sft. 

Large, new developments have taken hold in west Knoxville; some of the largest being Century Park at Pellissippi (developed by Commercial & Investment Properties), Parkside Plaza I &II (developed by Partners Development), Lakeside Center and Brookview Town Centre (developed by Blue Ridge Development).  These projects combine for almost 500,000sft of office space in west Knoxville in the last eight years.  The result has been high-levels of supply with lagging demand thanks to the economic down turn.  The hottest area in the past two years has been Dowdell Springs off Middlebrook Pike.  Three new medical facilities have opened their in the past two years along with  a 100,000sft FBI headquarters.

Retail has been dominant in this area as well.  Turkey Creek is Knoxville’s first lifestyle center.  All the national big boxes are there, with more on the way.  Even in this economic environment smaller stores, some locally owned, are surviving (I don’t know about thriving, but surviving).  There has been some turnover; mainly in restaurants, of which there is an over abundance.

City and County governments are pushing for development of the South Waterfront.  This area has had an industrial and commercial base for decades but holds some of the finest property in Knoxville.  On the south shore of the Tennessee River this area has views of UT and downtown.  For more about the potential developments click on the link below. http://www.ci.knoxville.tn.us/southwaterfront/

Plans are for more parks and mixed-use development along the waterfront.  Deeper into south Knoxville is Chapman Highway.  It is a hodge podge of aging retail, commercial and residential.  The only real growth is near the interchange of Chapman Hwy and John Sevier Hwy with a large retail center.

Clinton Highway has been a site of substantial retail growth in the past five years.  At the junction with Callahan Road several big boxes have popped up, along with associated shadow centers.  Traffic counts in this area have jumped from 15,000 cars per day to 20,000 cars per day in the last four years according to MPC.

In the industrial market things are always adjusting.  The information below is based on an MPC report from 2007.   Knoxville’s industrial market showed great improvement as availability dropped 190 basis points since 2005 to 11.1 percent in 2007. Total square footage was down from 33.2 million square feet in 2005 to 32.1 million square feet in 2007, while the number of buildings fell to 605.

Knoxville is generally thought of as having a lack of supply in the industrial sector.

So there you go a basic look at the market.  Of course we could go in to more detail but that would take a long time, and I’ve got properties to show.

I’ll be happy to go in to more detail.  Feel free to contact me at 865-617-2989 or jcazana@cornerstonecres.com